New-generation game hardware demand fully captured, driving record-high Q1; Taipei second store lease signed and TAYS surpasses 550 locations, expanding BtoB and overseas foundations

Summary

In Q1 FY2027/2 (ending Feb 2027), consolidated revenue reached JPY 11.72B (+36.9% YoY) and operating income came in at JPY 790M (+257.7% YoY), marking all-time quarterly highs since the transition to consolidated reporting. Stabilized supply of new-generation game hardware and a pre-price-revision demand pull-forward drove new game sales to 226.5% of prior-year levels, while pre-owned trading cards (+39.1% YoY) and pre-owned hobby products (+19.7% YoY) also performed strongly. During the call, President Fujiwara disclosed qualitative details not included in the earnings summary, including an approximately 5% improvement in the gross margin structure for books versus the prior-year period and the signing of a lease for a second Taipei location. Full-year guidance was maintained at JPY 42.5B in revenue and JPY 1.6B in operating income, reflecting management's stance of monitoring for potential pull-forward demand payback and second-half product trends.

Key Points (Earnings Highlights And Growth Initiatives)

• Management Strategy And Market Perception
  • Maintains positioning as a re-growth phase, upholding aggressive investment in new store openings, DX, and international expansion
  • Recognizes the ability to fully capture entertainment market momentum through proprietary systems and store network as a core competitive advantage
  • Demand catalysts including IP anniversary events are lined up for H2; preparations underway to leverage new-product procurement capabilities
• Current Business Progress And Drivers
  • New game sales at 226.5% YoY were the single largest Q1 revenue driver, underpinned by hardware supply normalization and pre-price-revision demand pull-forward
  • Book sales dipped slightly to 98.3% YoY, but DX initiatives improved gross margin structure by approx. 5% YoY (verbal disclosure)
  • SG&A ratio declined from 35.1% to 27.9% (▲7.2pt), demonstrating clear operating leverage; OPM expanded from 2.6% to 6.8%
• Strategic Initiatives And Inflection Points
  • Dissolved capital alliance with Suruga-ya, transitioning to a business partnership; acquired treasury shares via ToSTNeT-3 from Suruga-ya's holdings (JPY 248M)
  • Shut down Furuichi Online at end of June, consolidating e-commerce sales functions onto Amazon and Yahoo! Auctions
  • Lease signed for second Taipei store, targeting an autumn opening
  • Launched POP×THREE, a value-added service bundled with TAYS, automating on-site operations from purchase notifications to sales floor POP display generation

Outlook And Strategy

• Full-year guidance unchanged at JPY 42.5B in revenue and JPY 1.6B in operating income. Q1 achievement rates are elevated at 27.6% for revenue and 49.5% for operating income, but management is taking a wait-and-see approach on potential pull-forward payback
• Medium-term targets: JPY 50B in revenue and JPY 2.5B in operating income by FY2029/2, layering IP and global revenue streams on top of retail (including e-commerce) growth
• In-house development of IoT-equipped trading card vending machines has commenced, targeting significant cost reductions versus conventional units with field deployment from next fiscal year onward
• Piloting product diversification (branded goods, apparel/miscellaneous) with plans to scale in H2 and beyond
• Outsourced Yamato-ku's e-commerce logistics to Japan Post, enabling nighttime and weekend shipping and shorter lead times
• Dividend maintained at JPY 4 per share; combined with JPY 248M in share buybacks already executed, total shareholder return ratio stands at 63.0%

Positive Factors

• Q1 operating income of JPY 790M already represents 49.5% of the JPY 1.6B full-year forecast, suggesting room for an upward revision
• TAYS installations surpassed 550 locations; POP×THREE launch advances the shift toward recurring BtoB revenue streams
• 32,540 trading card tournaments held annually, with a 2.4M+ member base serving as a key differentiator for community-driven retail
• Cumulative mall-based store count expanded to 48, balancing lower opening costs with broader customer reach
• Signing of the second Taipei store lease accelerates the execution phase of overseas expansion
• Pre-owned trading cards at 139.1% YoY, buoyed by market price stabilization; synergies with new products reinforce TCG's position as a core category

Concerns And Risks

• The 226.5% YoY surge in new game sales includes pre-price-revision pull-forward demand, posing a payback risk from Q2 onward
• Rising new product mix (42.3% → 47.3%) is a headwind for Gross Profit Margin (37.7% → 34.7%, ▲3.0pt)
• Short-term borrowings increased by JPY 1.4B to JPY 2.9B; equity ratio declined from 48.8% to 44.5%
• High dependence on entertainment market product cycles means earnings can swing based on IP/title release volumes
• Shutdown of Furuichi Online creates a transitional period for e-commerce migration, with risk of customer attrition and temporary revenue dip
• Gradual disposal of TORICO shares ongoing (19.25% → 4.30%); changes in capital policy warrant monitoring for potential impact on alliance relationships

Performance Highlights

Q1 FY2027/2 delivered revenue of JPY 11,721M (+36.9% YoY), operating income of JPY 792M (+257.7% YoY), recurring profit of JPY 816M (+309.5% YoY), and quarterly net income of JPY 475M (+421.8% YoY). Explosive sales growth in new-generation game hardware combined with strong trading card and hobby performance drove all-time Q1 highs since the shift to consolidated reporting. SG&A increased just +8.9%, with operating leverage compressing the SG&A ratio to 27.9%.

Segment Breakdown

The company operates as a single segment; YoY sales by major product category are presented below.

• Consolidated Revenue: JPY 11,721M (+36.9% YoY)
• OPM: 6.8% (vs. 2.6% in prior-year period, +4.2pt)
• Gross Profit Margin: 34.7% (vs. 37.7% in prior-year period, ▲3.0pt)
• SG&A Ratio: 27.9% (vs. 35.1% in prior-year period, ▲7.2pt)
• Group Store Count: 185 stores (as of July 15, 2026)
• TAYS Installed Locations: 550+ (as of end of June 2026)
• Annual Trading Card Tournaments Held: 32,540 (FY2025 results)
• Member Base: Approx. 2.4M

Q&A List

• Q: As president, what aspects of Q1 results do you view most favorably?
  A: The entertainment market itself has been buoyant, driven by the products and initiatives manufacturers have brought to market. In terms of translating that momentum into our own results, I believe we executed extremely well. Our existing systems infrastructure and customer service capabilities came together, and when you look at the data, our in-store staff collectively handled a massive volume of customer touchpoints. That entire chain functioned effectively, allowing us to convert market tailwinds into financial performance. That said, the flipside of strong results in a hot market is that softer market conditions tend to produce the opposite effect. Some observers have noted occasional earnings volatility, which is a characteristic of our business model — roughly half new, half pre-owned, with a specialization in entertainment. But to reiterate, Q1 was a quarter where we successfully leveraged our unique strengths.
• Q: Given Q1 progress, could you explain the rationale for maintaining full-year guidance?
  A: When the market environment is favorable, consumers have a finite wallet, and some portion of demand was clearly pulled forward — for instance, the rush buying ahead of game hardware price revisions, which we explicitly reference in our materials. We have to assume that some of the profit we would normally earn over the full year has been front-loaded. We're only three months in, at the Q1 stage, and our conservative corporate philosophy dictates that we need to assess carefully and publish guidance that's as accurate as possible. At the same time, looking at the full year, there's still limited visibility on H2 volumes for key product lines and various IP title releases, which represents both uncertainty and upside. We're aware that titles with strong historical customer followings are slated for release, and that should translate directly into purchasing activity. Our goal is to deliver stable results in H2 as well.
• Q: How do you currently view the business environment and earnings trajectory from Q2 onward?
  A: Looking at the market environment ahead, there are numerous IP properties in the entertainment space, and H2 features several exciting catalysts — anniversary celebrations and similar events that tend to energize the market. We intend to ensure we don't miss any of these opportunities by leveraging our strength in new-product procurement to deliver compelling customer propositions, and we're preparing thoroughly to capitalize on the momentum ahead. We will continue striving to build earnings higher going forward.